As investors and regulators scramble to accelerate the decarbonization of the shipping industry and companies grapple with green financing, sources say that in 2022 ocean freight costs are likely to remain high.
To deliver more concrete action including a carbon levy, shipping, which transports about 90% of world trade and accounts for nearly 3% of the world’s CO2 emissions, is under growing pressure from environmentalists.
The UN’s specialist shipping agency, the International Maritime Organization (IMO) has made progress on short-term greenhouse gas (GHG) reduction measures. However, environmentalists and a number of the IMO’s 175 member countries do not see the timeline as fast enough.
Christian Michael Ingerslev, chief executive of Maersk Tankers (MAERSKb.CO) said:
“At the MEPC (IMO committee) meeting in June next year there will be a lot of heat and pressure on regulators to ensure that they come prepared to negotiate a solution rather than kicking the can down the road because of misalignment or negotiation tactics. It is really not acceptable.”
Last month at the COP 26 climate summit, countries including the United States pushed for the IMO to adopt a zero-emissions target by 2050.
Its goal, until now, is to reduce overall GHG emissions from ships by 50% from 2008 levels by 2050.
Faig Abbasov who works with green group Transport & Environment said:
“As far as the IMO is concerned, the negotiations process in 2022 will likely be very slow and onerous. The problem is in the very belief that a U.N. organization with 175 members can come together and take tough decisions to decarbonize an entire economic sector.”
In 2021, significant progress was made on combating climate change including new regulations to improve the energy efficiency of the world fleet. IMO said that next year it would “work very hard” on the development of a revised GHG strategy, which will be finalized in 2023.
Roel Hoenders, head of air pollution and energy efficiency with the IMO said:
“Where this is willingness to act, then processes can move faster.”
A proposal was submitted at the IMO to create a $5 billion research and development fund to find the right technology to meet the targets. However, it is still under discussion with further talks kicked forward to next year.
The impact on poorer countries such as Pakistan will be underscoring the challenges ahead. Climate change had “directly impacted us hard”, though the country was a small carbon emitter, Pakistan’s Federal Minister of Maritime Affairs Ali Haider Zaidi said.
While referring to the R&D fund, he told Reuters:
“Developing countries cannot afford to spend on the type of infrastructure needed and therefore, developed countries must support the process at the IMO.”
A further hurdle is financing the road ahead. According to analyst estimates, to achieve net-zero emissions by 2050, shipping will need $2.4 trillion, with around $500 billion required by 2030.
Chief executive of specialist asset manager Marine Capital, Tony Foster commented:
“Certainly, the European banks at least and not far behind the American banks will have to meet criteria that satisfy sustainable finance. When it comes to new assets it is going to be increasingly difficult to fund anything that does not quite qualify and the same will be true, perhaps even more so, with existing assets.”
Companies operating in the shipping sector were struggling with how to secure financial muscle with more ESG pressure, as highlighted by Darren Maupin, founder of leading fund manager Pilgrim Global. He added:
“Capital is afraid – how do you invest in a 25-year asset when you have no idea what the IMO is going to do in five years. The industry has a far reduced ability to build ships and limited capital available to do so. Simple supply-demand suggests rates are going to be higher and the industry is going to have to generate more capital to fund itself.”